Saia Inc (SAIA) 2004 Q1 法說會逐字稿

Welcome to the SCS Transportation first quarter earnings conference call. This call is being recorded. With us today are Bert Trucksess, Chairman, President and CEO; Jim Bellinghausen, Vice President of Finance and CFO; and Greg Drown, treasurer. [Operator Instructions] I will now turn the call over to Greg Drown. Go ahead, sir.

Thanks, Angela, and good afternoon, everyone. We trust you have a copy of our earnings release. If not, you can find one on various wire services as well as our web site. As you know the SEC encourages companies to disclose forward-looking information so investors can better understand the future prospects of a company and make informed investment decisions. During this call, some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 could be made. These forward-looking statements and all other statements that may be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. We would like to refer you to our earnings release as well as our most recent SEC filings for more information on the risk factors that could cause actual results to differ. I will now turn the call over to Bert Trucksess.

Thank you, Greg, and welcome everyone. We are pleased to again report improvement in performance of our operating companies as well as progress on a strategic acquisition and integration of Clark Brothers. We continue to execute our strategies to build value for shareholders. We are also encouraged by strengthening economy and the prospects of further economic gains as we move through 2004. To begin our discussion of the first quarter, I'll ask Jim Bellinghausen to review our consolidated results.

Thank you, Bert, and good afternoon everyone. Consolidated revenue for first quarter was 225 million, up about 12.5% from the first quarter of 2003. Revenue included one extra business day, additional fuel surcharge revenue and a $9.2 million revenue impact from Clark Brothers, since the February 16 acquisition date. We would also like to remind you that the first quarter of 2003, had more adverse weather, which had some impact on both revenue and operating income. Operating income for the first quarter 2004 was $6.8 million up 50% from 4.5 million in the first quarter of 2003. Included in operating expenses are approximately $1 million of integration charges related to the Clark acquisition.

The integration charges and incremental financing cost were entirely offset by 1.1 million in operating income generated by the Clark operation, since the acquisition date. Net holding company operating expenses were $400,000 higher than planned due to the effect on equity-based compensation and benefit plan of a 24% first quarter appreciation of our stock price. Our effective tax rate for the quarter was approximately 41%. Resulting net income was 2.6 million in the first quarter, double the net income of $1.3 million in the prior year quarter. First quarter 2004 earnings per share were 17 cents, up 89% from 9 cents in the prior year quarter. Our balance sheet and continued access to capital provide flexibility to fund future growth initiatives.

We had some borrowings under our revolving credit facility during the quarter, but no borrowings under the facility as of the, at the end of the quarter. As of March 31, debt net of our 6 million cash position was 117 million and the net debt to capital ratio was 37.7%. Net cash used for the acquisition of Clark Brothers was approximately 23 million. Separately, net capital expenditures for the acquisition of property and equipment were 3 million for the quarter. We expect total capital expenditures for the acquisition of property and equipment to be approximately 60 million for the year. The large majority of capital expenditure for the year is for replacement of revenue equipment. Depreciation for 2004 is expected to be approximately $50 million. I'll now turn it back to Bert to discuss details on operating company performance.

Thank you, Jim. We are pleased to report continued progress on both growth and profitability at Saia and Jevic, and the integration of Clark Brothers in Saia, which is on schedule for early May has been well received by customers and employees. Let me start with review of Saia but acknowledge there are some comparison challenges due to the Clark numbers being included for only half the quarter. We will attempt to be clear on which numbers reflect combined operations versus stand alone results. In Saia's core historical operation excluding Clark, the company posted solid performance on volume strength and improving operating efficiencies.

Revenue excluding fuel surcharge was up 8% to 134 million. And operating income was 6 million up 39% from the first quarter of 2003. The operating ratio improved 100 basis points to 95.5. LTL revenue per hundred weight excluding fuel surcharge was down 0.9% due to increasing weight per shipment and continued shift to targeted industrial accounts. While these accounts and heavier shipments have lower revenue per hundredweight they had a favorable impact on surface, capacity utilization and profit. During the quarter, Saia provided record on-time performance exceeding their 97% goal. Operating efficiency execution was solid across the board with particularly strong performance in load average, line haul efficiency and accident and injury reduction.

The mid-quarter acquisition of Clark Brothers contributed 9.2 million in revenue. Excluding integration charges of 1 million, the Clark segment generated operating income of 1.1 million and an indicated operating ratio of 88%. Results benefited from strong seasonal volume in this abbreviated period and solid initial implementation of Saia terminal efficiency techniques. Results also benefited from the partial quarter, which excluded the very weak January and half of February, as well as a reduction in overhead without a corresponding corporate overhead allocation. We're excited about this performance and the future of our Midwest expansion largely due to the particularly strong employee support and customer reception.

On a combined basis, Saia revenue excluding fuel surcharge was up 15% from the first quarter of 2003. And obviously that first quarter of 2003 with Saia stand-alone. And from a run rate perspective, combined revenue per day excluding fuel surcharge in March was up 21% compared to Saia stand-alone in March of 2003. Including integration charges and half a quarter of benefit from the Clark operation, Saia had operating income of 6.1 million, up 42% from the first quarter of 2003. The operating ratio for the combined operation for the first quarter was at 95.0, excluding the integration charges of 1 million, which is a 150 basis point improvement over the Saia stand-alone in the first quarter of 2003.

Moving on to Jevic. We're particularly pleased with the progress that Jevic demonstrated in the first quarter. Ongoing operating initiatives are producing the highest levels of service reliability performance in company history as well as improving cost control execution. Simultaneously process changes recently implemented also played a role in helping the company effectively manage the implementation of the new hours of service rules. As a result, Jevic operating income for the first quarter was 1.9 million compared to 1.1 million in the first quarter of 2003, a 70% improvement. The operating ratio improved 90 basis points to 97.7.

Revenue per day excluding fuel surcharge was up 6% from the first quarter of 2003 with continued volume gains in yield improvement. Excluding fuel surcharge, LTL yield improved 3.4% from a year earlier and truckload yield improved 1.6%. LTL tonnage per day was up 1.7% and truckload tonnage rose 5% from the prior year quarter. The first quarter 2003 was particularly strong quarter, thus these gains are even more meaningful. Jevic's driver recruiting effort continued and driver levels are currently at planned levels. The company expects to add drivers in each of the next two quarter to efficiently handle expected volumes. The number of driver additions was slightly less than discussed during our last earnings conference call primarily due to improved operating efficiencies. We continue to see a tightening of the driver market, which was expected with an improving economy and implementation of the new hours of service regulations.

Finally, let's review our earnings guidance for 2004. Based on company specific initiatives and our economic outlook, we expect second quarter earnings per share in the range of 32 to 38 cents. And full year earnings per share in the range of $1.40 to $1.48. Our guidance is largely consistent with the original guidance offered in our January 22nd, conference call adjusted for recent positive trends and the Clark business case. These estimates include first and second quarter integration charges related to the Clark acquisition of 1 million and estimated 1.1 million respectively. The estimated earnings per share of these integration charges are approximately 4 cents for the second quarter and 8 cents for the full year.

Thus, our full year earnings guidance on an operating basis is $1.48 to $1.56. We're encouraged by our progress and convinced our strategy is sound and excited about the opportunities for continued improvement. Finally, I am also pleased to announce the promotion of Greg Drown, the treasure of SCS Transportation, which was approved by our board of directors at a meeting earlier today. Greg will continue to report to Jim Bellinghausen. Greg, thank you for your past efforts and we look forward to substantial contribution in the years to come. At this point we'd be happy to open it up for questions.

[Operator Instructions]. Your first question comes from Jason Seidl with Avondale Partners.

Hey gentlemen, how are you guys today?

Good Jason.

Couple of quick questions here. Bert, maybe you can go through how the quarter was mapping out for both Saia and Jevic. Some of the feedback from other companies both public and private I've gotten tell a very strong March, more so than just normal seasonality. That is question one. Let's answer.

Ok. There are obviously seasonality patterns. When we look at the individual months, I think January was good, February was good and March was stronger.

And that's excluding normal seasonality or -

No, that's including seasonality.

If you took seasonality out of the mix was March stronger than the other two months?

March was -- let me say it this way. March was stronger than normal seasonality trends would have suggested.

That's what I figured it would have been. That's fair enough. How much of an impact at Jevic did the freezer protection freight have in the quarter? I know it started out as good business for you guys.

Yeah, it actually it's an important segment and one that as we look at the course of the year I guess we kind of like -- when it gets real cold our first priority is to service existing customers and there were some days in the quarter that were bitter cold and we had to give priority to established customers and could not take some other requests that came into the company. In addition, there were parts of the month that got so cold that the freezing protection program was not effective because it was even below the capabilities of the network. But, the point is it's an important segment for Jevic when we have cold weather like that we think it's helpful for reminding customers of the importance of being a regular customer because when we have that kind of weather it's the existing regular customer that we give priority to.

Ok. Fair enough. If I could stay with Jevic here, Bert, could you put numbers behind drivers? I know you mentioned it's -- you plan to hire fewer than you did before. Can you throw numbers out at us?

I believe when the quarter was completed we ended up adding 35. And in an earlier call at year-end we were projecting adding perhaps 50. And as we were effective in making improvement in operating efficiencies the 35 proved to be the right balance for us.

Ok. That's fair enough. And let me hop back to Saia real quickly. Actually maybe I should just say Clark because it's referring to their service area. You had a competitor in Clark service area; K&R systems go out of business. They were a smaller carrier about 50 million in revenues, but nonetheless they did go out. Was Clark or Saia able to pick up any of that business?

Actually that company did not directly overlap with Clark. They covered states to the east of Clark's operations.

I thought they overlapped with some--. My bad, Bert. Quick question on the rabbi trust plan, how many shares at the end of the quarter are in the trust fund?

There's roughly 60,000 shares so $1 increase in our stock price really in the (inaudible) operating income by about $60,000.

Ok. So then the so the number at year-end was 63 617. So that went down or is that correct still?

60 was just a rough number. I think it is slightly more than that.

Ok. That's fair enough. All right guys thanks.

Jason, also equity that compensation also affects the performance unit plan that is documented in our proxy. There are two different plans that are affected by the equity compensation.

Right. Thanks, Bert.

Your next question comes from Dan Moore with Stephens Incorporated.

Actually, this is Jack Wilder. How are you guys doing today?

Hi, Jack. How are you?

I'm hanging in there. I had a few questions first of all on the Clark issue. It looks like they're owe on the first quarter was significantly better than the FY '03. How much did that have to do with just the general pick-up in business levels in their area and how much of it is cross-selling opportunities? Are you benefiting at all from the synergistic opportunities there yet?

As I mentioned in my comments you really need to recognize and we were pleased with their core revenue strength. We were pleased with their progress on operating efficiencies. But you have to remember that when you take a first quarter and it's only March and half of February that in and of itself is going to be a substantially better time period than if you have to include all of February and January, it's just a seasonally stronger slice of a quarter. So we had that effect. We also had effective with the acquisition we had some overhead cost go away and we just weren't allocating Saia management overhead fees, as well. So I -- I guess the bottom line is we are very encouraged at the profitability and revenue and cost trends, but recognize those other distortions and I wouldn't get - I wouldn't institutionalize that 88 OR without considering those other factors.

Fair enough. Have you and the second part of the question have you started reaping the benefit cross-selling opportunities yet?

We are early in that process and the integration will be effective - the actual integration is in early May and that's when that will really accelerate. We have had extensive conversations with a lot of customers and we're very encouraged at the prospects.

Ok. And then this is kind of leading to my other question. But are you still expecting a run rate of 15 cents in accretion from Clark or based on what you've seen so far has that gone up in your guidance?

Jack, the -- as we said in the prior call we were looking at 6 cent accretion and the 9 cents of integration charges, we've now rounded it to 8. It's just minor rounding differences. And then as it becomes integrated into Saia it will be difficult for us to further isolate those effects, but so, I'm not going to give you a number but I will tell you we are more encouraged at the upside opportunities today than we were when we announced the transaction.

Ok and then staying on the guidance issue. What type of economic environment are you guys projecting? I know you have had a benchmark that you've used. Has that benchmark changed since you originally gave guidance?

We probably moved it up just a little bit in looking at current revenue trends. I think in the last call we identified the industrial production was projected to be in the high 4 levels and that our guidance was based on a 3% type of economy. We're probably closer to a 4% economy now.

Ok. And do you still, on the growth above what the economy does in incremental margins as well, do you still expect to grow tonnage at 100 to 300 basis point premium to that?

General answer would be yes. Hopefully can even be a little bit more than that. Obviously one of the things that we're always attentive to is opportunities to look at yield, as well. But, all things equal, we think there should be an opportunity to grow at least 200 basis points over core industrial production.

Ok. And then on the incremental margin points, we still be thinking 15% kind of in a normalized environment?

I think so. Clearly with the Clark acquisition we do have a few more facilities that are going to have additional volume coming their way and but I think that macro 15% type rule still applies.

Ok. And then last question and I know you guys are just now in the process of integrating Clark. However, could you talk a little bit about your growth strategy going forward? Is there a possibility that we could see strategic acquisition another one in the next 12 months as long as Clark continues to go well?

Well, as our growth strategy is going to focus on two things. First and foremost is building density in our existing geography and that geography now has service capabilities with the expanded geography at Saia to grow better and I would tell you also at Jevic, the service quality improvements that they've made in the first quarter we also see that as giving us additional growth. So first and foremost is, existing geography. Secondly more to your point we will be attentive to looking at smart opportunities for other possible expansions.

And I'm guessing none of that is in your guidance, correct?

Excuse me.

None of that is in your guidance correct?

There is a little bit in well the geography density is in but we don't have further geographical expansion.

Ok. And then very last question. I know the majority of your business doesn't overlap with Yellow or Roadway, but in specific markets you compete with - with those two carriers, have you seen change in shipping behavior or shipping mentality? I know Conway had commented they had seen some freight divergence but not enough to move the needle and that some shippers had asked them to kind of revisit their pricing on current business. Have you seen any of those trends?

We have not seen anything specific in that regard.

Ok. Fair enough. Thanks.

Your next question comes from John Wood (ph) with Morgan Keegan.

Hi, guys.

Hello, John.

Greg, congratulations. I'm sure you deserve that, really quick the purchase - the charges that were going to be taken for Clark, it seems as if --. Has that come down any? I know you were going to capitalize 800,000 and 2.1 million added in the two quarters I thought the total charge that you had expected was 3.5 million. Am I missing something?

Let me ask Jim to take you through that.

The 3.5 million is an accurate number and of that, actually it's a little closer probably to 3.6. And about 2.1 of those are charges that would actually flow through the P&L that would not be capitalized and we saw a million of those accrued here in the first quarter or forecasting the balance of those in the second quarter. And then, we have about 1.5 million that are capitalized as part of the purchase price.

Ok.

So, we've not changed our numbers there.

Ok. On the employee front at Clark, how have you replaced 50 employees, have they moved to other areas of Saia and how is that going?

The-- first off let me just say we've been very pleased at the overall employee reaction. I think probably what you are referring to is that there were some functions that once the integration is completed will be shifted into Saia's back office functions in Homa and those shifts will occur in conjunction with the May 3, early May integration cut-over.

Ok. Quickly, the service level that was great commentary. Do you think there is an improvement in service levels at Saia. Will that give you some pricing power later this year? I noticed that yields were down and you addressed that, but could you talk about yield on the second half of '04 at Saia?

I think Saia's service capabilities were very sound before this first quarter and we just saw them further improve in another increment. At the end of the day, the ability to grow the business and attract the kind of volumes that you would like and be successful in getting incremental price increases, it comes down to having the quality service. And in that regard, I'm equally excited about the significant success that we saw at Jevic in the first quarter. They've -- they had some great service statistics in the first quarter.

Yeah. Leads me to my last question. The shift that we've seen at Jevic to LTL tonnage over the past several quarters that stopped this quarter. Is that indicative going forward? I mean should we model more of a TL tonnage increase at Jevic or do you still have opportunities to increase the LTL percent there?

Yeah, I think we've not changed. Our fundamental focus, there's not been a change in strategy. With I guess with one exception being the middle of last year Jevic expanded its truckload program for selected back haul lanes, which was more of a operating cost initiative. And some of the good bit of the volume change you see on their truckload was tied to that back haul program. In addition, there probably was some additional truckload not only at Jevic, but at Saia, as well, that came our way as a result of just some of the effects of hours and service and some of the capacity issues that the truckload industry developed. But we have not changed our focus on that LTLTL mix.

Ok. Is the chemical piece of Jevic's business, how is that responding in a better economy?

Uh, pretty consistent with what we would expect. We are seeing some improvement there, and the overall improvement that we're seeing at Jevic is kind of broad-based across all of its segments with chemicals on a broad base as being 50% of their business that's certainly a major part of it.

Ok. And, one more. What portion of that $400,000 in increased compensation plan charges were related to the long-term incentive plan and I guess the rest is that rabbi trust, could you break that out?

Sure. About 125,000 was due to the long-term incentive plan and the balance about 275,000 would be the capital accumulation plan, the rabbi trust.

Thanks. Good job, everybody.

Thanks, John.

Your next question comes from Thom Albrecht, with BBT.

Hi, guys, a lot of my questions have been answered. But these are kind of earnings, numbers I like to see. So congratulations on a great quarter.

Thank you, Thom.

I don't want to beat a dead horse here, but let me just ask a little bit more about these couple of issues, that may be in a slightly different manner. I know up until and on through the fourth quarter of '03, there was still a lot of talk that the regional LTL markets were still competitive and, and I'm just trying to figure out it sounds to me like we could stop using those sorts of descriptions and just say, thank goodness the recovery is here. It feels good enough. Would that be a fair description or is there still that regional lane in price competitiveness?

I think, that competitiveness is still there. It's helped when the economy strengthens. It's helped when capacity is tight. But you know we certainly see plenty of situations where an individual negotiations and transactions that it's still a very competitive market and I expect that to be still the rule in our future and that's why as a company we continue to be continue to be focused on always trying to be more efficient and productive from a cost standpoint.

Ok.

I guess it's gotten better, Thom, but I think the mentality is you know, it is still pretty competitive.

Ok. And then, I know you talked a little bit about your weight per shipment. It went up and that I'm wondering and I know it's very difficult to do, but how much of that increase might have been because of little bit of truckload freight may be migrating back to the LTL arena versus the economy? Do you have any way at all to sort of separate or discuss that 2.8% pounds per shipment increase at Saia?

Well, certainly the hours of service cause the overall truckload volumes to increase as they had. But I don't feel comfortable. I could split it out, other than telling, my instinct is it's primarily the economy on our own initiatives as oppose to just some impact from hours of service.

Ok. So all right. I think that's fair enough. And then in May, when you talk about the integration finishes, you're really talking about the completion of the computer systems and everything or is there a little bit more beyond that?

Well, I mean, it's really up until a certain date, like today we are running under Saia's management, the Clark operation as a separate operating entity. And they go out and pick up freight; they put it on - they put it in their system, through their computer system. They build the customer and when we do the cut-over those transactions are going to be put into Saia's system and from a customer standpoint it will look just like any other Saia transaction from the standpoint of tracing. It'll be part of Saia's line haul operation and Saia transit time standards will be in effect. So it's really converting it from being a separate interim operation managed by Saia into being part of a Saia seamless operation.

Ok.

Yeah with, I'm sure we'll have some things continue on behind that point but this is the fundamental transfer. We've got some things going on right now, it's well advanced. We're very encouraged and we think it is important to get this implemented sooner rather than later because the benefits are so substantial for us that we can better start realizing them once we have the cut-over.

Ok. Well, keep up the good work, thanks.

Thanks, Thom.

Your next question comes from John Barnes with Credit Suisse First Boston.

Hi, guys.

Hi, John.

Hi, John.

Is that better? There we go. Sorry about that. Phone problems. Real quick, as you've gone through the integration of Clark, have you found any surprises either good or bad you know as you have gone through the integration process and given that it's kind of your first major foray in this type of transaction since you spun out from Yellow, what have you learned as you have gone through this process that prepares you for the next one you do assuming there is another one?

Well, I think the process that we're going through, if you go back in time and really the spin-off didn't have any effect on changing the fact that in 2001 we went through an integration of actually two larger companies when we integrated West Techs and Action. And we're largely following the process that we had then. We had some lessons learned but you'll recall that was a pretty successful integration. That's pretty much what we are following here. We are very encouraged at what we are seeing. Overall there's been no significant surprises. The employee reaction's been very positive and customer reaction's been very positive and we've certainly been encouraged at the strength of both revenue levels and the solid performance on the cost side. So, it's really going quite well, John.

Ok. And then I guess the next question is -- as you look at Saia now covering 30 states, you know, 18 more states continental U.S., out of those 18, how many more would you like to cover and can you do it just organically or do you see the need to - if you want to move into additional states or gain density in where you are today, which do you think gets you there faster organically or is there a good fit for you out on the market place?

Well, you need to look at it both ways and we know in our own history at Saia we're -- Saia has grown through the years both through organic as well as acquisitions that sometimes one is better than the other and it really comes down to, if you can find an attractive acquisition candidate that is well run, is available at a reasonable price, you are able to get into the geography on day one, with existing market share. Whereas, if you do organic you're able to immediately implement your own systems and cultures on day one, but you are starting with 0 revenue. So it really depends on what the opportunities are and it's also possible that we could see ourselves expanding existing geography through a combination of both organic and acquisition opportunities.

Ok. Thanks for your time, guys.

Ok.

Your next question comes from Dana Seize (ph), with Bear Stearns.

Hi, guys. How are you doing today?. Good quarter

Thank you, Dana.

Quick question for you. I apologize if someone's already asked it, but just was trying to figure out if you guys had numbers on Saia's tonnage yield and revenue net of fuel excluding Clark?

Jim, do you want to give a couple of highlights there?

Surely -- this is Saia only quarter-over-quarter. The LTL tonnage increase was 8.5% on per day basis, it was up 6.8%.

Ok.

And the yield really wasn't impacted much by Clark at 10th of a percent roughly.

Ok. And the revenue net of fuel was roughly -

I'm sorry; revenue net of fuel for 2004 was around 133.6 million, up 8.1%.

Great. All right. So solid, solid improvement at Saia, as well?

Yes.

Great. Well, thanks very much. And again, good quarter, guys.

Thank you.

At this time you have a follow-up question from Jason Seidl, with Avondale Partners.

Two more quick ones, guys. This is going to sound knit-picky but your press release says that this expands Saia service area to 29 states and if I go back when you released about Clark Brothers you said now Saia has going to cover 29 states did you pick up extra state, or did you expand since then?

Yeah, you know what, Jason, the differential is North Dakota.

Excuse me, Bert?

It's North Dakota.

North Dakota.

Yeah, Even though we don't have a physical terminal there we are covering that market.

Ok, so nothing's changed before there, it was the same thing before, it was just different wording in the releases?

Yes.

Ok. Not a problem. Also, I am not sure if you can comment on this. Obviously in the quarter there was a lawsuit brought by some former Clark Brothers employees. I don't know the status of that lawsuit and I wonder if could you update on us it?

Ok. Well, our Clark Brothers acquisition agreement is a matter of public record. And if you look at that agreement you will see that the agreement provides for substantial indemnification for our company for various types of events and the agreement also provides for substantial collateral protection to fund those types of events. Beyond that, any particular litigation whether it be the one you are referring to or any other, we just don't have any comment.

Ok. Fair enough, Bert. Thanks, guys.

You have a follow-up question from Dan Moore with Stephens Incorporated.

Hey, guys. Dan here. Great quarter.

Thanks, Dan.

Just a couple of follow-ups here. And I may have missed this since it was discussed already. I apologize. I was wondering if you could go ahead and talk to us little bit about freight demand trends in the month of April? To follow-on on that, give update for where capacity utilization is in the existing networks?

Ok. Well, as I mentioned before, March was a particularly strong month. My sense is that April is very strong, maybe not as quite strong as March, but it's certainly a very solid revenue month. So we're encouraged at what we saw both in March and there seems to be good strength here in April. Maybe not quite as to the same degree of strength.

Ok.

Don't take that as a negative.

Ok

And then with respect to capacity, I guess at our two companies with the exception of a couple places that were either capacity challenges before or places where additional Clark volumes will be coming through, most of our real estate could handle meaningful increases in volume still which I think in the past I said things like, if business levels went up 15% we might have -- I used to say we'd have five or six facilities that would have capacity issues out of our 127. And you know now it is still less than 10. So I guess the point is we still have meaningful capacity on real estate.

If we were to look at our fleet, certainly if the business would grow 10 or 15%, we would have to scale up the fleet but there would be a favorable economy of scale as you do that. It wouldn't be one for one. I would also add that in the case of Jevic, we're certainly sensitive to as the business grows making sure that we have the availability of drivers and while we're in good shape right now and have plans to continue to grow our driver fleet we don't take that for granted and we note with interest some of the challenges that the truck load companies have been having with trucks sitting idol.

Bert, if demand continues on its current pace and 12 months from now you find yourself in a scenario where after benefiting from Clark and (inaudible) some network, if you will, and tonnage continues to kind of creep up into the right here, at what point do you think yields start to move up, not only for SCS, but in the market as a whole?

Well, if you look at the industrial economy projected to grow in the high 4 levels this year and into next year, you know I think that's going to occur sooner rather than later.

Fair enough. Last question and I'll call it quits. In the past there seems to have been a little bit of disconnect between operating EPS and GAAP EPS as it relates to First Call consensus estimates. I just want to reiterate your guidance or have you reiterate your guidance, if you would, for the full year '04, including and excluding one-time related events?

Ok. Well, we're looking at with some of the rounding changes that we've acknowledged, we have 8 cents of integration cost. So on a GAAP basis, including those 8 cents, we're looking at a range of $1.40 to $1.48. Thus, adding back that 8 cents on an operating basis you'd be at $1.48 to $1.56.

Right.

And for the second quarter, where we're looking at a range of 32 to 38 cents, again that's on a GAAP basis. There's about a million one which rounds to a little bit, just a touch more than 4 cents a share. So you can increase that range for the second quarter if you wanted second quarter on a GAAP basis.

Fair enough. Guys, thanks again. Good quarter.

You're welcome. Thanks.

Your next question comes from Max Bather (ph) with Winfield Capital.

Congratulations. Good quarter as everyone said. My question about the company have all been asked and answered. I have a question about the industry, if you don't mind.

Ok.

Can you talk about the interplay between the hours of service situation, driver shortage and some of these guys desire to get back into the owner/operator business? Are you seeing any trends toward more owner/operators as economic prospects improve for these guys?

I don't know that I have a good read on that other than the -- over the road truckload type operator hours of service has certainly created some change in challenge.

Right. Except for (inaudible).

And I guess I don't know why that would make it better to be an owner/operator. I think the same challenges that one would have as an employee would be applicable to an owner/operator from a compliance standpoint.

No, I think that's right. I just wondered if you were hearing anything you know (inaudible)?

Yeah, I mean the other thing you have is the insurance markets are -- in some respect they've gotten a little bit better, but they've gotten better by having very high premiums and increasingly high deductibles and I just think that whole insurance area increasingly becomes a greater challenge to owner/operators.

I don't disagree with anything you said, just wanted to hear a little comment and thank you very much. Keep up the good work.

Thank you, Max.

You have a follow-up question from John Wood with Morgan Keegan.

Sir, it relates to insurance. It looks like a pretty good insurance quarter at least year-over-year. Could you talk about what impact, if any, Clark had on that, and is that a opportunity going forward?

I think there was no significant effect from Clark. Their old insurance policy I believe is still in effect and they'll be coming on over to the SCS policies. We -- safety is a major priority for us and I would just tell you that when you look at Saia and Jevic, we had a number of successes in terms of improved frequency trends. Having said that, the results at Jevic could have been better even though we had some nice frequency improvements. We did have a few accidents that were above the norm in terms of frequency of accidents in that dollar range.

That hurt their operating income profitability in the first quarter. I guess the bottom line there, Jevic's results could have been, would have been better in the first quarter had we not had three or four accidents in particular that I'm thinking of. I think we are beyond what would have been normal for a quarter.

Thank you.

At this time there are no further questions. Do you have any closing remarks?

No, we thank you for joining us today and we look forward to our next update in July. Thank you, everybody.